United States: HHS Finalizes Comprehensive Modifications To HIPAA Regulations In Omnibus Final Rule

On Thursday, January 17, 2013, the Department of Health and
Human Services Office for Civil Rights ("HHS") released
in pre-publication form the rule commonly known as the "HIPAA
Omnibus Rule," which we refer to below as the "Final
Rule."1

As summarized in a
prior alert, on July 14, 2010, HHS published its notice of
proposed rulemaking ("NPRM") entitled "Modifications
to the HIPAA Privacy, Security, and Enforcement Rules under the
Health Information Technology for Economic and Clinical Health
Act" ("HITECH"). Further, as summarized in
another alert, on August 24, 2009, HHS published its Interim
Final Breach Notification Rule (the "Interim Breach
Rule"). This Final Rule, to be published in the Federal
Register tomorrow, finalizes (i) changes in the NPRM, with some
modifications, (ii) changes in the Interim Breach Rule, with some
modifications, and (iii) the changes previously proposed to HIPAA
under the Genetic Information Nondiscrimination Act
("GINA").

The Final Rule will be effective on March 26, 2013. Covered
entities and business associates must comply with the Final Rule
within 180 days, or by September 23, 2013. HHS has provided a
longer compliance timeframe for certain other requirements, such as
required changes to business associate agreements. All
modifications to the Enforcement Rule, which governs the compliance
responsibilities of covered entities during the enforcement
process, will be effective on March 26, 2013.

I. Breach Notification and Enforcement Rules

The Final Rule makes limited but significant changes to the
Interim Breach Rule that became effective on September 23, 2009.
Most significantly, the Final Rule replaces the harm standard
present in the Interim Breach Rule with an access standard. HHS
makes clear in commentary that it views the former harm standard as
overly subjective, and indicates its belief that the new standard
will be more objective and will likely increase the number of
incidents resulting in breach notifications.

The Final Rule also sets forth four "required" risk
assessment factors that should drive any breach analysis:

Nature and extent of the protected health information
("PHI") involved (e.g., types of identifiers and
likelihood of re-identification),

Type of unauthorized person in receipt of the PHI as a result
of the breach (e.g., thief, other health care
provider),

Whether the PHI was actually "acquired or viewed;"
and

Extent to which the risk to PHI has been mitigated.

The Final Rule maintains mostly unchanged the content and timing
requirements of breach notices, whether to individuals, prominent
media outlets or the Secretary of HHS ("Secretary").
Nonetheless, the commentary provides a number of instructive
clarifications.

For additional information about changes to the breach
notification rule, please
click here.

2. Modifications to the Enforcement Rule

HHS may conduct a formal compliance review (when prompted by
media reports or reports by state or other federal agencies) or an
investigation when the preliminary review in response to a
complaint or other inquiry reveals culpability less than willful
neglect. HHS must initiate a formal investigation when a party
appears to have exhibited willful neglect. The Final Rule no longer
requires the Secretary to exhaust all informal resolution efforts
before moving directly to a Civil Monetary Penalty
("CMP"). The Final Rule establishes four tiers of CMPs
based on culpability levels: "reasonable diligence,"
"reasonable cause," and two separate tiers that
correspond to "willful negligence."

Within each tier, HHS will consider aggravating and mitigating
factors, including reputational, physical or financial harm to the
affected individual(s), the number of individuals affected, and
prior indications of noncompliance by the entity under scrutiny.
HHS may not impose CMPs for violations due to reasonable diligence
or reasonable cause that are corrected within 30 days. However,
entities may no longer assert reasonable diligence as an
affirmative defense to CMP liability; rather, a showing of
reasonable diligence would result in assessment under the lowest
penalty tier. Even in cases of willful neglect, curing a violation
within 30 days of actual or constructive knowledge of the violation
may reduce the entity's potential penalties substantially.

II. Specific Modifications Regarding Business Associates

1. Applicability of the Privacy and Security Rules to Business
Associates

The Final Rule makes clear that HHS will hold business
associates directly liable (i.e., business associates will
face liability beyond contractual liability to covered entities)
for certain violations of the Privacy Rule or the Security Rule
including:

Impermissible uses and disclosures of PHI;

Failure to disclose PHI when required by the Secretary;

Failure to disclose PHI upon request to a covered entity,
individual, or individual designee, as applicable;

Failure to limit PHI used or disclosed to the minimum amount
necessary to accomplish the intended purpose;

Failure to enter into business associate agreements with
subcontractors that create or receive PHI for the business
associate; and

2. Modifications Required for Business Associate
Agreements

The Final Rule contains a number of provisions regarding
business associate agreements originally proposed in the NPRM.
Consistent with prior contractual implementation requirements,
covered entities and business associates must implement required
changes to all business associate agreements if the agreements are
renewed or modified after September 23, 2013, but no later than one
year after September 23, 2013.

Please
click here for a summary of these changes and other items
relevant to business associates.

III. Updated Marketing Rules

Although the NPRM suggested significant changes to permissible
marketing practices, the Final Rule includes additional material
modifications to the NPRM. Notably, the NPRM proposed allowing
providers to make treatment-related marketing communications for
which the provider receives financial remuneration, on behalf of
third parties (i.e., subsidized treatment-related
communications), without authorization if patients were advised of
such possibility in the provider's notice of privacy practices
("NPP"). The Final Rule is significantly more
restrictive, requiring covered entities to secure individual
authorizations in advance of engaging in any non-exempt marketing
practice. The Final Rule also adopted the term "financial
remuneration" set forth in the NPRM without change, and
provided some clarifying guidance, including the specific exclusion
of non-financial benefits from this definition.

IV. Modifications Required For Notices of Privacy
Practices

Significantly, the Final Rule requires covered entities to
modify and re-distribute their notices of privacy practices
("NPPs") to include the following:

A description of uses and disclosures that require individual
authorization, such as uses and disclosures of PHI for marketing
purposes and disclosures that constitute a sale of PHI;

A statement that other uses and disclosures not described in
the NPP (or required under HIPAA) will be made only with an
individual's authorization, which may be revoked;

If PHI is used for fundraising purposes, an explanation
regarding fundraising communications, as well as information
regarding an individual's right to opt out of receiving such
communications;

A statement that covered entities must or will notify affected
individuals following a breach of their unsecured PHI;

For health care providers only, a statement informing
individuals of their right to request a restriction of certain
disclosures of PHI to a health plan if the individual pays out of
pocket in full for the health care item or service; and

For health plans only, a statement informing individuals that
health plans will not use or disclose genetic information for
underwriting purposes.

V. Changes to Rules Governing Research

The Final Rule adopts several changes to the provisions
governing research. Many of these changes were adopted in direct
response to recommendations made by the HHS Secretary's
Advisory Committee on Human Research Protections and the Institute
of Medicine. In general, the Final Rule allows research entities
subject to HIPAA to utilize so-called "compound
authorizations" in connection with research and also
eliminates the requirement that research authorizations must be
study-specific in favor of a more flexible standard for
researchers. The Final Rule also retains exceptions to the
authorization requirement for any use or disclosure permitted by
the Privacy Rule when remuneration means only payment of the
reasonable cost of providing the PHI. The Final Rule also clarifies
that a covered entity's outsourcing of research review,
approval, and oversight functions, such as the use of an external
or independent Institutional Review Board, does not give rise to a
business associate relationship. Lastly, as discussed in more depth
below, the Final Rule adopts the NPRM proposal that 50 years is
appropriate protection for decedent health information, which has
important implications for the research community.

For a more detailed summary of changes relevant to research,
please
click here.

VI. Changes to Rules Regarding Fundraising

The Final Rule requires covered entities to provide individuals
with an opportunity to opt out of receiving fundraising
communications. The Final Rule also expands the types of health
related information covered entities may use for fundraising
purposes, and requires covered entities to make changes to their
NPPs to reflect the use of PHI for fundraising purposes.

For a more detailed summary of changes relevant to fundraising,
please click
here.

VII. Other Miscellaneous Changes to the Privacy Rule

The Final Rule makes a number of additional modifications to the
Privacy Rule that will vary in relevance for covered entities and
business associates depending upon their business. The additional
changes we summarize include those regarding: (i) limited
circumstances under which covered entities may sell PHI; (ii)
individual rights to request restrictions on uses and disclosures
of PHI to health plans, (iii) enhanced rights of individuals to
access PHI in electronic form, (iv) protections required on PHI of
decedents and (v) permitted disclosure of immunization records to
schools.

VIII. Modifications Required Under GINA

GINA requires HHS to make a number of modifications to the
Privacy Rule to enhance protection of genetic information for
individuals, except with respect to long term care insurance plans.
This exception for long term care insurance plans is pending
additional review by HHS, based upon concerns that having this
information is essential to accurately underwriting long term
care.

1This final rule is formally entitled,
"Modifications to the HIPAA Privacy, Security, Enforcement,
and Breach Notification Rules under the Health Information
Technology for Economic and Clinical Health Act and the Genetic
Information Nondiscrimination Act; Other Modifications to the HIPAA
Rules."

On February 10, 2015, in United States v. Patel, the Seventh Circuit Court of Appeals ruled that a physician makes a "referral" within the meaning of the federal health care programs Anti-Kickback Statute (AKS).

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